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NuFi > Articles by: Adam Cochran

MakerDao

[review]

MakerDAO also known as “Maker” is one of the oldest and most important projects in the DeFi space.

The system allows users to use a tool called Oasis to deposit Ethereum and in-turn take out collateralized loans in a stablecoin called DAI.

DAI was the first “decentralized stablecoin”. While most stablecoins historically were based on being worth $1 USD because an actual US dollar was deposited with the company that issued the coin, DAI is instead based on a smart contract and is not backed by real US dollars.

Users deposit Ethereum and other cryptocurrency assets, and in turn get to generate a set amount of DAI. They pay an annual fee for the amount of outstanding DAI, and if they fail to pay back the DAI loan then their collateral (that Ethereum or other cryptocurrency assets they deposited) is liquidated, or sold, to pay back the balance.

DAI is the equivalent of the US dollar in the decentralized finance space and is one of the most important cryptocurrencies used in other DeFi products.

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Note: You must have created a Ledger wallet for Kin in order to manage this process.

Step 1 – Go to Kin Transaction Builder:

https://laboratory-beta.kininfrastructure.com/#txbuilder?network=public

Step 2 – Source:

For the source account enter the public key of the device you are sending from.

For the sequence you’ll click on “Fetch Next Sequence” button to automatically generate the key.

For the base fee you will need to enter 100 this is the fee in stroops 0.01 Kin.

Step 3 – Operations:

For the operation select the type “Payment” and enter the public key address of the recipient wallet.

For asset select native and enter the amount of Kin you want to send.

Step 4 – Signing:

If successful the transaction builder will create a transaction envelope XDR. Click “Sign in Transaction Signer” to continue.

Next you’ll see a summary of your transaction:

 

If that looks correct scroll down to the signing section. Ensure your wallet BIP is correct and click “Sign with BIP Path”

Once you verify the transaction on your Ledger device you’ll be able to click “Submit to Post”

Step 5 – Posting:

After that you’ll be taken to submit the transaction to the Kin Horizon node. Click submit and it should transfer to the blockchain succesfully.

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WarningThe following method is not official or supported. It relies on third-party tools. You probably should not use this method. There is a risk of having your wallet compromised. There is a risk that because this method is a workaround, that updates to Kin apps may break your wallet and lose your balance.

If you are looking to simply transfer Kin1 to Kin3 then you should use this guide: http://nufi.io/how-to-swap-your-kin-a-guide-for-multiple-exchanges/

Step 1 – Download a Kin3 Migrated App:

To start you must download a Kin3 migrated app such as Kinny

If you do not have an Android device then you will need to use Bluestacks

Step 2 – Backup your wallet:

In Kinny create a backup of your Kin Wallet.

First open the Kin Wallet:

Then click on the cog settings symbol in the top right hand corner of the screen:

Click on “Keep your Kin Safe”:

Create a backup password:

You MUST remember this password. It is impossible for the Kin Foundation to help you recover, reset, or unlock the wallet without this password.

You will then receive a QR code of your wallet backup. Save the QR code as an image.

Step 3 – Unlock account:

To recover the account info we’re going to upload the image of the QR code to a third-party site (KinExplorer) made by the creators of Kinny.

This is super unsafe and unadvisable. You should never upload your recovery image anywhere even to sites you trust.

But, here is where you can do it, and here is what it looks like:

Step 4 – Get Public Address:

The back up you uploaded will now show you the public address of your Kinny wallet:

Step 5 – CoinSwitch:

Navigate to CoinSwitch and go to their Kin Swap Page

Enter the amount of Kin you want to transfer.

Then hit “exchange”

Step 6 – Transfer:

After that you’ll get an ERC20 address to transfer to. Transfer your ERC20 Kin to that address and wait for 30 block confirmations.

You should now be able to reload your Kinny account and see the new balance.

Step 7 – Important: Clear data:

After using the KinExplorer upload feature it has a copy of your data in the local storage for the site. You must clear your browser cache and cookies so that it does not store this information.

Once again you REALLY shouldn’t use the method but some of you are going to anyway.

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Warning: This method is a bit complicated. You should only do this if you are an advanced user. Do NOT try this if you are not experienced. If you are not an experienced or technical user you should STRONGLY consider using the exchange swap method from this post: http://nufi.io/how-to-swap-your-kin-a-guide-for-multiple-exchanges/

Disclaimer: The Kin App for Ledger is not officially released yet through Ledger Live. It is still considered in “test” mode. Be careful sending large amounts of Kin to this wallet.

Step 1 – Download or Update Ledger Live:

Ensure you have installed the latest version of Ledger Live. Which you should only ever get from the official Ledger website.

Step 2 – Update your Device Firmware:

You will need to be running device firmware 1.5.5 in order to use Kin.

In order to update your Ledger you should open Ledger Live and click “Manager”

Then you should see a notification to update your firmware. Click to install.

Ledger will then ask you to unlock the device so it can verify the ID of the device. If this timesout there is not enough space on your Ledger to do the update. You should uninstall some of the apps via Ledger manager (this will not effect your crypto balance as you will reinstall them after the update).

You’ll then wait as the update downloads to the device.

Ledger will then ask you to remove the USB cord, hold down the left button and reinsert the USB cord (this soft restarts the device). Then you will see a screen that says “Bootloader” click the left button to complete the bootloader update.

After this Ledger Live will complete the update. After this unlock the device and reinstall any apps you need.

Step 3 – Developer Mode:

On Ledger Live click the settings cog in the top right hand corner of Ledger Live. Scroll down to the bottom of the settings page and turn developer mode on.

Step 4 – Install Kin App:

Search for and install the Kin app.

Step 5 – Kin Laboratory:

Navigate to the Kin Laboratory which still says Stellar at the top….thanks Kin…

Make sure in the top right hand corner of the screen the network choice says “Public” and that the URL listed is https://horizon.kinfederation.com

Also ensure that the SSL certificate is seen as secure by your browser as we will be transmitting sensitive information.

Update: Kin Lab now lists Kin at the top and is https://laboratory.kin.org/

Step 6 – BIP Path:

On the Ledger Viewer page you will see a dropdown menu saying “Select BIP Path”

Since the Kin Foundation has not selected a standard BIP path for Kin, you can use any path. Just remember which you selected.

In order to have the viewer connect you must have opened the Kin app on your Ledger. Otherwise you will get a U2F timeout error.

Step 7 – Public Key:

Once you’ve unlocked your Kin wallet, your public key will be displayed within the viewer.

Step 8 – Swap Test Transaction:

Now its time to swap, the only live instant swap option right now is CoinSwitch.co – which I do not recommend, but, some of you are desperate to switch and do not want to use the exchanges where you have to wait a few days, so this is the only option.

Navigate to CoinSwitch’s Kin Swap Page and select the amount of Kin to send. I recommend starting off with a 1 Kin test transaction.

Fill in the main net address that we generated in the Laboratory. A memo is not required.

Step 9 – Send Coins:

After clicking “Exchange” CoinSwitch should show you an Ethereum address to send to. Send your Kin tokens to that address and wait for 30 block confirmations.


Step 10 – Receive Coins:

After it is confirmed on the Ethereum blockchain, CoinSwitch and the Kin Blockchain should process the transaction within a few minutes.

Step 11 – Check Balance

You should now be able to see your new balance on the Kin blockchain using the Kinexplorer.com blockchain explorer.

Important Notes:

Since Ledger Live does not support currently sending Kin through its interface you will need to manually build and sign all outbound transactions via the “Transaction Builder” on the Kin Laboratory.

If you are not comfortable with that process do not use this swap method as your Kin will be stuck on the Ledger until Ledger Live updates to include Kin or until someone builds an online wallet viewer.

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What is a blockchain? What is the blockchain?

What is a blockchain?

Many people have heard the word “blockchain” – it seems to be the financial buzzword of the year.

But, when you ask people “What is a blockchain?” then other than knowing it is the underlying technology behind cryptocurrencies, most people have no idea what a blockchain is or why its important.

The simplest way to describe what a blockchain truly is, is to call it a “decentralized public ledger.”

Before we can get into the nuance of how a blockchain applies this in a technical sense and what the advantages are, let’s get on the same page about what these terms mean.

Let’s start off by stripping away the “decentralized” part, and focusing on what a “public ledger” is.

If English is your first language, you probably feel you have a decent grasp of that concept just from the two words alone. “Public” accessible to everyone. “Ledger”, a book or record of financial information. But, I’d still ask that you follow along with our analogy below, because there is important nuance we’ll unpack when applying this concept to the blockchain.

What is a public ledger?

To better understand what we mean by a “public ledger” I’m going to take you through a story that I’ve shared with my students over the years to help them understand the blockchain.

The Village Ledger

What is a blockchain?

I want you to imagine a little tropical island village.

A lush paradise with a series of huts, surrounding one large middle structure.

This tropical island paradise is home to five different families. For simplicity sake, we’ll simply refer to them by number such as “Family #1.”

Our society lives in a pre-modern civilization. They are a simple farming community. They can read and write, and have iron tools – but, they don’t have electricity, and haven’t even begun to use things like oil or coal for fuel.

This simple farming community spends their year harvesting coconuts. They tend to them throughout the spring, harvest them in the summer and then in Autumn, they trade the coconuts with a more advanced society on the mainland in exchange for supplies to get through the winter.

The Island Problem

Early on in this societies existence, they realized they had a problem. The families small huts couldn’t act as storage for all the coconuts that each family had harvested.

They needed a better place to store the coconuts, so the families came together and built a large structure at the centre of the village where all the coconuts would be stored. And, at the end of the season, the community would just trade all the coconuts at once.

Since certain families were larger than others, they both contributed more coconuts to the collection, and needed a larger share of the supplies to get through the winter, and so they needed to come up with a way to track contributions for each family.

The Island Ledger

What is a blockchain?

To solve their problem of tracking how many coconuts each family contributed, the inhabitants of our island decided to create a ledger book and put it on a shelf outside the coconut storage hut.

On the front page of this ledger was a list of each family’s name, and the amount of coconuts they owned in the storage unit:

Family #1 — 100 Coconuts
Family #2 — 85 Coconuts
Family #3 — 115 Coconuts
Family #4 — 125 Coconuts
Family #5 — 75 Coconuts”

On the internal pages of the ledger, there were a series of transactions, at first these were just families adding coconuts:

Family #1 added 3 Coconuts – June 22nd

Family #2 added 4 Coconuts – June 25th

But, the families then realized something else. They now had the ability to trade among one another without physically exchanging coconuts. They could instead just update the ledger. So now we have transactions that read:

Family #1 traded Family #3 5 Coconuts for 2 quarts of milk

Then “Family #1” would lower their balance of coconuts from 100 down to 95, and “Family #3” would raise their count of coconuts from 115 to 120.

This public ledger allowed the families to know if individuals truly had the money without seeing it. It also allowed them to trade assets between them without having the items in physical proximity, and it created very rudimentary forms of debt and credit (as technically a family could be negative in coconuts and owing to another family.)

This system works fairly well except for one caveat – trust.

The Trust Problem

What is a blockchain?

Our islanders have known one another for generations, and the five families trust one another. They know that the information in the book is updated by people they trust, and so they don’t need to ask for proof when looking at the numbers.

However, one day, a new family moves to the island and sets up a home. The islanders are quick to welcome “Family #6” and teach them their ways. A few of the families even donate a couple of coconuts to the new family to help them get started and they update the ledger to read:

Family #6 – 20 Coconuts

The next morning “Family #6” goes to “Family #1” and offers to buy their cow. “Family #6” says they are willing to pay 300 coconuts for it. In disbelief, “Family #1” goes to consult the ledger and see how many coconuts the new “Family #6” has.

When they look at the ledger they see a transaction from last night that reads:

Family #6 added 700 coconuts – June 28th

And the balance of at the front of the book now shows:

Family #6 – 720 Coconuts

Now the Island ledger system is broken, because the community has one “bad-actor” that they can no longer trust.

Back to the Blockchain

What is a blockchain?

Ledger systems have been around for a long time, but, they require “trust”. We  either trust all the individuals in the system, like our island community did or we have to trust middlemen like banks, who often charge large fees.

This becomes a huge challenge, especially in the digital space. This is why there is an important difference between a ‘public ledger’ and a ‘blockchain’.

It’s a weird concept to wrap your head around, but everything on the internet is essentially a file on a computer. Like a .jpeg picture file that you might have sitting on your desktop. (Yes, this is an oversimplification, but, for the non-technical among us, it is accurate enough to understand the concepts at hand.)

If I have a picture on my desktop and I send it to you, there is no way for me to know what you do with it. Even if you send me the picture back, you could have duplicated the file and still have a copy. To send you a digital file, I require either the ability to:

  1. Trust that you will handle the file to my specifications.
  2. Or, not care about what you do with the file as it will have no negative impact to me.

If I can’t trust what you will do with a file, how can I trust you to report the right amount of money (or coconuts!) to me?

Creating Internet Money

What is a blockchain?

In the early 90s, when the internet was fairly new, there was a lot of discussion on how to use the web for payment systems.

There were even multiple attempts of people creating an “internet currency.”

These services all faced a number of challenges.

Challenge #1 – Centralization Cost and Adoption:

Some of these services that popped up required you to pay huge transaction fees. If I wanted to send $100 to my friend across the globe, they might only receive $80 by the time all the fees are taken.

To make matters worse, my friend already had to have signed-up for an account with this service in order for me to send them money.

Challenge #2 – Centralization Trust and Existence:

Furthermore, if I was using a centralized service, I had to both trust the service was reporting the real amount of money (and not going to steal my money) – but I also had to trust that the service was going to be around for a while.

Many of these services operated like an early PayPal. But, because they were transacting in non-federally regulated currencies they weren’t insured or held to any standard. If I had bought $100 worth of e-Gold in order to transfer it to my friend, and the e-Gold service shut down, then I lost my $100 and there was nothing more that I could do.

Challenge #3 – Decentralized Trust:

Around the time of these scammy services, there was a lot of discussion of if you could create a “decentralized” service in which there was no central server, or administrator. The responsibility of the service would be shared by the community – much like our Island Ledger.

Every attempt to create such as system was met with the same challenge. No matter how much they screened their members, eventually a bad actor got into the system and greed took over ruining it for everyone else.

The Advent of the Blockchain

What is a blockchain?

The internet had failed on a few occasions to bring us a public ledger system that could operate without us needing to trust all of the participants. That was until the 24th of May 2009, when a mysterious individual named Satoshi Nakamoto posted an academic paper called “Bitcoin: A peer-to-peer electronic cash system

Not a lot is known about Satoshi Nakamoto, in fact, to this day no one is sure of his real identity. No one has ever met him, and in 2010 he left the Bitcoin project and stopped communicating with anyone through his online handles. Since then his fortune of over 1M Bitcoins (at their peak worth $20B) has remained untouched.

No one knows who Satoshi Nakamoto is/was, or if it was even a single person. What we do know is the Bitcoin “whitepaper” introduces the first concept of a digital blockchain aimed at allowing a decentralized public ledger system that is “trustless.”

The basics of Bitcoin’s blockchain

What is a blockchain?

Since Bitcoin was the first blockchain ever created/implemented, we’re going to talk about a number of the features in terms of Bitcoin’s blockchain.

It’s important to remember that while blockchain’s differ in features, the core of what makes it a blockchain is that it is some sort of “trustless” “decentralized public ledger.”

We’ll start with a high-level overview of Bitcoin’s blockchain, which may sound very technical, but after that we’ll break down each part so it is easier to understand.

Bitcoin’s Blockchain – A high-level overview

Bitcoin’s blockchain is very similar to our public island ledger. “The Blockchain” itself is a public record of balances and transactions that exist between users.

Instead of tracking the exchange of coconuts however, this blockchain tracks the balances of Bitcoin.

Instead of a ledger having listings for each family like “Family #1” each user has a “wallet.”

Wallets are given their own unique “public key” and “private key” that are used to manage the wallet and allow the user to send transactions.

The ledger is used to keep track of how many “Bitcoins” each wallet has. (Although just like in our coconut example, bitcoins never actually move to different wallets, they only update the numbers in the ledger.)

The ledger (the blockchain) is a big data list of transactions, balances and events, that are split into small chunks called “blocks” and copies of it are stored on thousands of computers around the world.

Whenever a wallet makes a transaction the decide the amount to send “sign the transaction” with their private key and send it to the network.

Then every computer that is connected to the Bitcoin blockchain by “mining” checks their local copy of the ledger and validates if the user has the balance, if their “private key signature” matches the public key, and if they’ve signed the transaction. If they have the “node” (mining computer) validates the transaction with a “Yes” vote.

As long as more than 51% of computers agree that the transaction matches with their record, then the transaction is approved and takes place, because they have reached “consensus”.

All the computers who were “mining” split up the transaction fee as a reward.

Where is the ledger stored?

What is a blockchain?

Unlike in our island ledger example, the ledger is actually not one physical ledger. It exists as copies across thousands of computers around the world. These “Bitcoin Blockchain Nodes” store the entire history of the ledger. Anyone can download a copy of the blockchain (ledger) and become a node.

How is information stored in the ledger?

All the transactions and balances of a blockchain are stored in data chunks called “blocks”.

If we were on our island ledger, this would be the equivalent of one page in the ledger. We fill up a ledger page with transactions and then move to the next page.

In Bitcoin, one block is produced every 10 minutes, and it is filled with the latest transactions. That information is sent out to all the computers connected to the network.

What are wallets?

Instead of having line items in the ledger for each family, users instead have “wallets” which are their entry in the ledger to store their Bitcoin.

These wallets are identified by a “public key” which is also known as their “Bitcoin Address”

What is a public key?

A public key is a bit like an address, if I want to send you a letter, I need to know an address where you live.

In Bitcoin, wallet addresses are random strings of letters and numbers. For example:

1A1zP1eP5QGefi2DMPTfTL5SLmv7DivfNa” this address was the first one ever created (referred to as “The Genesis Address”) and is owned by Satoshi Nakamoto.

Public keys/addresses aren’t very user friendly when presented as random strings, but, it’s actually very important that these strings exist because they interact with private keys.

What is a private key?

What is a blockchain?

A private key is kind of like a password for accessing and controlling your wallet. It’s something that only you know, and you can’t ever share.

Unlike passwords, private keys cannot be changed.

The public key and private key are actually linked together through a complicated mathematical function that creates both of them.

When you have a private key you can use it along with the math function to produce the public key, but it is mathematically impossible to use the public key to figure out the private key.

This is what allows us to “sign” transactions. Using our private key our wallet creates an encoded string (such as turning “ABC” into “123”). This string, when created by the private key, can be decoded by the public key (although the encoding/decoding can’t work the other way around).

This allows us to prove “this transaction was indeed signed by the person who owns this public address” even though we don’t know the key.

The equivalent for our island ledger would kind of be like each family having a wax seal to stamp their transactions with. Perhaps each stamp had a very unique feature that only that family knew how to create. This means that even though you didn’t see them apply the stamp to the paper, you know it must have been them who stamped the page.

Private keys are complicated stamps, that are impossible to duplicate or trick and will always match the public key.

What is a node?

A node is any computer system connected to the blockchain network. Nodes monitor and help to validate transactions through a process called “consensus”.

What is Consensus?

What is a blockchain?

Each node has the ability to vote on a transaction. In blockchain technology there are a number of methods of counting votes and deciding how nodes agree on transactions. These are called “consensus mechanisms” – essentially “how do the computers reach consensus” or “how do we decide when enough of us are in agreement.”

On our island ledger, this would be like letting each family vote on whether they believe the transactions to be real/true, and only counting the transaction if enough of the families voted yes.

The main point of consensus mechanism is to decide three things:

  1. How do we decide who gets a vote?
  2. How many votes do they get?
  3. How many votes minimum are required to approve/deny a transaction?

If we look at our island example this might break down something like:

  1. Do all members of the village get individual votes or do only the families get to vote?
  2. Should family get more votes if they have more family members? Should their vote hold more weight if they contribute more coconuts?
  3. Is a transaction real if 3/5 families agree? Or do 5/5 families have to agree?

For the Bitcoin blockchain the model they use is called “Proof-of-Work.”

What is Proof-of-Work?

Proof-of-Work is the consensus mechanism for the Bitcoin blockchain.

Some people advocated that each “wallet” should simply have one vote on a blockchain. The challenge with this becomes it costs nothing to make a wallet, and it costs no resources to run a wallet.

If I was a bad-actor, I could simply make 1M fake wallets, tell the blockchain I was sending a big transaction and have all my fake wallets say it was true. Then your wallet would believe I had sent you the bitcoin, even if I didn’t have any to send.

To solve this problem Satoshi Nakamoto suggested the method of Proof-of-Work, in which computers must partake in “mining” in order to have a vote in the network. Because of the way mining works, its resource intensive and you can only have one mining program open on one computer.

This creates an economic cost for voting, and proves some level of identity, making it so that people can’t cheat the voting system.

What is mining?

What is a blockchain?

Mining is basically using your computer to solve a complicated math problem. A random number and a “hashed” encryption string of letters and numbers is also generated.

Your computer needs to randomly generate numbers until it finds one that, when combined with the other number the blockchain gave us, that it produces a matching hash string. (Hashed strings are when you take any letter and number combination and change it based on a set of rules. Very similar to secret codes or “decoder rings” that you might have had as a child – except these rules are complicated algorithms)

This description is a bit confusing, so here is a simple example. Imagine I give you the letters:

ABC

And the encoded string:

234ZAB

You don’t know the method I used to encode the string, all you know is that you have to randomly guess three numbers. When you have a guess you can ask me if is right and I will say “Yes” or “No”.

You have to keep guessing until I say “yes.”

In our simple example, the method of encoding might be “-1”

So I may take the numbers 3, 4, 5 and subtract one from each of them, so they become 2, 3, and 4.

Then I may take the letters A, B, C and subtract one (or move one letter back in the alphabet for each) and have them become Z, A, B.

As we know, your computer needs to guess a string to put in front of “ABC”. In this case we need “345” so that when it is combined with “ABC” it becomes “345ABC”. When we pass it through our “hashing function” of “-1” it becomes the encoded string “234ZAB”.

This is a super simplified version of how the computers are randomly guessing numbers to check against a secretly encoded string.

What is the purpose of mining?

Actually, nothing. It’s pointless. The numbers are entirely random and not used for anything.

The only goal of mining is for it to take time and be hard. You essentially get more voting power on the blockchain the more guesses per second your computer can produce.

While mining, these nodes also verify transactions by checking that someone’s “signed transaction” matches with their “public key” but this process is trivial for computers and takes fractions of a millisecond.

In our island ledger concept, this would be similar to the process of the family creating their unique wax seal. It is something tedious and challenging that ensures the work is genuine because the effort required to try and cheat the system outweighs the benefit of tricking the system.

What is a blockchain?

Why do people mine?

Mining is a common method of distributing cryptocurrency like Bitcoin. Since  you need to provide an economic incentive for people to use their computers resources in mining, they are rewarded with Bitcoin.

In the beginning of Bitcoin, Satoshi Nakamoto decided that there would be 21M Bitcoin produced. To help randomly and fairly distribute them, they would be awarded to users who find the solution to the next block puzzle when mining.

Each 10 minute block consists of the “block prize” and the total transaction fees from users who sent transactions during that 10 minute time window.

The first set of blocks yielded 50 Bitcoins each as a block prize, and that amount gets lower over a set time period (roughly every 4 years). The goal is eventually that, once all 21M coins are mined, that the fees earned from transactions will be enough that miners will continue to mine for Bitcoin and help secure the network.

What does it mean to say a blockchain is “trustless”?

“Trustless” or “Trustlessness” are new concepts. Right now, we think of systems, communities, groups of people and individuals as “thing we trust” and “things we do not trust”.

It is ultimately a scale between 0% – 100%. I can 100% my bank, or I can 30% trust my bank (which ultimately means I don’t really trust them.)

Trustlessness, or trustless systems, are (usually economic) systems which exist without the need for trust. I don’t need to trust or not trust other nodes on the blockchain. It is literally impossible for them to successfully lie to me or manipulate my transaction. If I own some Bitcoin, no other person in the world can take that away from me. It’s not like a bank or PayPal who can freeze my funds. I have trustless access to those funds, and trustless control over them.

What does it mean to say a blockchain is “decentralized?”

What is a blockchain?

A decentralized system is one that has no central point of failure or control.

For example, PayPal is a single corporate entity in the United States. If PayPal Inc, goes out of business, you will no longer be able to use PayPal to hold or transfer your funds. If PayPal inc, decides to freeze your assets, you no longer have any opportunity to reclaim them except through interacting with PayPal.

A blockchain, however, is decentralized. There is no “Bitcoin Inc” or any other company that runs Bitcoin. Bitcoin cannot be shut down or destroyed.

The public ledger is decentralized because copies of it exist on tens of thousands of computers all over the world. If I turn off my computer, it doesn’t shut down the Bitcoin blockchain. The blockchain keeps progressing and in the morning when I turn on my computer again, it will just catch up with the ledger by downloading the latest blocks.

Blockchain vs Public Ledger

So we now understand that the key differences between our classic “public ledger” system and a blockchain boil down to:

  1. Decentralization: Everyone has a copy of the ledger.
  2. Trustlessness: Impossible to fake validation methods (private/public keys) mean that the data we see in the ledger must be true.
  3. Consensus: Everyone in the system gets a vote when it comes to validating the data.

Bringing it Back to the Island

So if our island was to implement many of these features we would now have a system where:

  • Each family earns votes based on how many coconuts they produce.
  • Each family stamps transactions they are part of with a special wax seal that only they can make.
  • Each family votes to decide if they believe the stamps to be real and genuine in each transaction and at least 51% of the families must agree or the transaction is removed from the ledger.
  • Each family keeps their own copy of the ledger, and updates it by asking other families for the latest updates and only recording the transactions if more than 51% of families agree on the transactions.
  • In exchange for helping to validate transactions, each of the families are rewarded with a small cut of the transaction as a fee.

That’s it. That’s essentially a blockchain without electricity, without the internet, without any technology at all. Blockchains seem big and scary, but, when we think of them on our little tropical island it’s pretty straight forward.

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Kik (the company behind the Kin ecosystem) recently launched their first beta app “Kinit” on the Google Play Store. The launch received polarizing feedback with both an out-pouring of positive reviews on the Play Store, but, some tough criticisms from both the community and reporters who failed to understand parts of Kik’s strategy.

A Quick Recap of the Main Criticism:

  1. From the Community: “They aren’t doing any marketing of this launch!
  2. From the Community: “Their future plans are only to market to developers!
  3. From TechCrunch’s John Biggs: “ By encouraging usage they drive up the token price and token velocity and by launching a general beta full of cutesy imagery and text they are able to avoid the hard questions about developer adoption until far into the future. While the KinIt app is probably not what most Kin holders wanted to see, it’s at least an interim solution while the team builds out sturdier systems.
  4. From CCN: “There isn’t any business model — how will this work?
  5. FUDsters and haters: “Kik hasn’t done much since the big ICO
Over the next series of posts, I’m going to address each of these points, explain why I believe they are fundamentally flawed, and address why I think Kin’s strategy is headed in the right direction.

They aren’t doing any marketing of this launch!

One of the main points that the community is making right now, is that Kik and the Kin Foundation are not currently doing anything to promote the Kinit app. Before we dive into the reasons that this is the right decision, it’s important to remember some background:
  • Kinit is a beta.
  • “Beta” in technology projects is very different than “beta” games which are normally just early access.
  • Kinit is limited to one country currently (the US).
  • Kinit is only available on Android during the beta.
  • Kin is still testing their new Kin blockchain (based on Stellar).
Given the above, there are two reasons why Kik should not be marketing Kinit to the general public right now. # 1 — Understanding the Chasm: Heavily marketing a beta launch, especially to the general public, is a horrible idea. Consumers fall into a number of different categories in terms of their willingness to adopt new products, and their ability to be forgiving about bugs and expectation gaps.
Image result for crossing the chasm
When a startup or new product launches into beta, they focus on a “minimum viable product” (MVP) which is essentially a first draft of their product with slimmed down feature sets. This MVP often acts as the beta for innovators and early adopters to help test, refine and give feedback upon. These users are part of an early market that exists outside of the mainstream. They are used to using early, incomplete, and complicated products, and will stick with the products even if there is a lot of friction or frustrating bugs. (Chances are, if you are reading this you are in the ‘Early Adopter’ category. Because crypto has not yet “Crossed the Chasm.”) After that early market group, you reach a point called “The Chasm.” This is the gap between early adopters and a mainstream market. “The Chasm” is tremendously challenging for products and startups to cross, and it often ends up being a fatal point in the growth trajectory of most startups. Beyond “The Chasm,” most consumers expect a complete, polished, easy to use and easy to understand product. These mainstream users don’t know anything about wallets or private keys and they’ll abandon any app that has simple bugs, including:
  • Frequent typos or grammar issues.
  • Poor layouts.
  • Auto-rotation glitches.
  • Issues with SMS/2FA.
  • Overlapping text.
  • Poor support on certain devices.
Not to mention that they’ll be far less forgiving on things like the amount of surveys, and amount of offers they want to be able to redeem on a recurring basis. Mainstream users are picky. Unlike early adopters (you) they don’t have emotional, ideological or financial connections to a product. They will look for any excuse to churn out and never use your product again. They also cost more to reach as you often have to educate them on the purpose of the product. #2 — The Leaky Bucket: In marketing, when we advertise to new users and try to get them to adopt a new product this is called our “marketing funnel” — the “marketing” that most people talk about is usually paid advertising that takes place at the “awareness” level of the funnel.
When looking at the effectiveness of a campaign, we take detailed measurements on a marketing funnel (I won’t get into these here, but if you are unfamiliar with funnel metrics I can highly recommend Andrew Chen’s post on “How to Create a Profitable Freemium Business.”) The most important factor to understand is that we pay out at the top of the funnel, but we profit from the bottom. Think of it like trying to fill a bucket at your tap. You are paying for the water coming out of your tap, but, you are only benefiting from the water that goes into the bucket. But, if you drop any water from the bucket, it goes down the drain and you can never put that specific drop back in your bucket. If your bucket has no leaks, then this isn’t a problem. But, your bucket does have leaks.
Related image
All product buckets do — but the goal is to minimize the leaks. Right now, when someone discovers Kinit the leaks are:
  • 100% of users who use iPhone.
  • 5% of users who use an Android device running versions older than 4.4.
  • 100% of users outside the US.
  • Users who are frustrated by bugs.
  • Users who can’t SMS verify.
  • Users who don’t feel there are enough surveys.
  • Users who don’t feel there are enough redemption rewards.
  • New landing pages which are still being optimized.
  • New onboarding flows which are still being optimized.
  • Lack of churn mitigation and reengagement from the app.
  • and many more.
Paid marketing funnels are tough for free apps, and so they need to have an air tight funnel. You may be thinking “Yeah, but, I hear of developers who get $0.50 — $2 cost per installs when marketing their apps so Kin should just go buy 1M users!” and while that is true, it doesn’t account for retained users and it isn’t viable at this scale. Paid marketing has a tremendous challenge wherein the larger the audience you try to reach, the less cost efficient it becomes. While getting 10,000 installs for $1 — $2 a piece is trivial, getting 1M installs using paid marketing channels is likely to cost more in the order of $7 — $12 per install at scale. (Math post to follow later in the series!) This matter is made worse by the fact that on average only 33% of users retain on apps after the first 30 days. This means Kin could be effectively paying $21-$36 per user (excluding gift cards) which would be a terrible strategy. $1M spent on partnering with established developers, apps that are growing and have higher CPAs due to freemium models, and partnership teams is going to go a lot further than 300,000 purchased users. The goal of Kinit is to act as a central wallet point within the Kin ecosystem, and so as the ecosystem grows users will naturally be on-boarded to the app. #3 — Kik is spending money on acquisition: Lastly, it’s important to realize that Kik IS spending money within their marketing funnel. They are just spending it in the “engagement” / “retention” part of the funnel rather than on awareness. The gift cards within the Kinit app are currently having their cost compensated by Kik. I’d hazard that the compensation is around the 75% mark. So even if we assume that a user only receives one $5 gift card during their entire beta, then that means Kik has spent $3.75 on making it easier for that user to earn the gift card and retain the user. Takeaways & TL;DR:
  • The app is a beta, and not ready for a picky mainstream audience.
  • Advertising to a mainstream audience before your product is ready for them makes it MUCH more costly to advertise to them in the future.
  • Spending money on awareness campaigns is wasteful until you iron out your conversion funnel.
  • Paid acquisition marketing (at the awareness stage of the funnel) is effective for small businesses. When trying to scale a company to tens of millions of users it loses efficiency and requires a much higher RoI margin that a free app like Kinit doesn’t have.
  • Kik IS spending money on marketing, by compensating the cost of user gift cards in Kinit. This is money spent at the engagement/retention phase of a marketing funnel, which is by far the most cost effective stage.

Curious what all the fuss is about? Check out the Kinit app where you can earn and spend the Kin cryptocurrency every day! [thrive_leads id=’3175′]
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